Do foreign and local investors price foreign exchange risk differently?―Evidence from ADR

• Main Authors: Pei-Hsin Chen, 陳佩馨
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/18145773103214773687

碩士 === 國立中正大學 === 財務金融所 === 94 === This thesis tests whether foreign investors price foreign exchange risk differently from local investors. The sample consists of 30 ADRs from Taiwan between 1996 and 2005. Using the covariance estimation model is developed by Chesney et al. (1993) and Pastorello (1996). My results show that most underlying stocks’ return are not influenced by exchange rate and most ADRs’ return are influenced by exchange rate. Most exchange risk of underlying stocks and ADRs are not changed when Asian financial crisis in 1997. Foreign investors generally price exchange risk differently from local investors, and that the source and magnitude of differences in exchange risk pricing vary significantly across stocks. Foreign investors for non-electronic stocks price the exchange risk of underlying stocks return differently more than whom for electronic stocks since non-electronic stocks are less globalized industries. In general, most foreign investors do not price the exchange risk of underlying stocks return. However, local investors demand greater risk premiums for the exchange risk associated with currency translation. Foreign investors generally price the exchange risk of underlying stocks return when Asian financial crisis in 1997, and therefore foreign investors demand greater risk premiums for exchange risk.